Supply and demand: trading from where orders are stacked
Supply and demand is the zone-based cousin of the order block. Instead of a single candle, you mark the small base, the pause, that price exploded away from, because that base is where unfilled orders are stacked. The idea is older than SMC and overlaps with it heavily; think of an order block as the refined, single-candle version of a demand or supply zone. This module shows how to draw the zones and which ones are worth trading.
Demand and supply zones
A demand zone is a base that price rallied away from strongly; a supply zone is a base that price dropped away from. The base is a short pause, a few small candles, where a large participant was absorbing orders before the move. Price tends to return to that base to fill the rest of the position, which is why the zone holds. Mark the base, not the spike, as your zone.
The four formations
Zones form in four shapes. Drop-base-rally and rally-base-drop are reversal zones, where price turns. Rally-base-rally and drop-base-drop are continuation zones, pauses inside an existing trend before it resumes. Continuation zones are often the safer trades because they go with the trend, while reversal zones need more confirmation from structure and liquidity before you trust them.
Fresh versus tested
Like order blocks, a zone is strongest the first time price returns to it. A fresh zone still holds its unfilled orders; a tested zone has already given some of them up and is more likely to break on the next visit. Prioritise fresh zones, and when a zone has already reacted once, lower your expectations for the second touch rather than raising them.
Zone quality
Not all zones are equal, and the departure tells you which to trust. A base that price left with a fast, imbalanced move, strong bodies and a clear fair value gap, marks serious orders and a high-quality zone. A base that price drifted away from slowly is weak. Grade every zone by how violently price left it; the explosion out of the base is the evidence that something real happened there.
Refinement
A base can be several candles wide, and a wide zone means a wide stop. Refine it by finding the single origin candle inside the base, usually the last opposite candle before the move, and using that tighter area instead. This is the exact bridge between supply and demand and order blocks: the refined zone is the order block. Smaller zone, same idea, better reward-to-risk.
Supply, demand and order blocks
Do not get lost in names. A demand zone and a bullish order block describe the same thing at different resolutions: a place where buying orders launched a move and may rest unfilled. Use the zone to spot the area quickly on a higher timeframe, then refine to the order block for the entry. The concepts agree; the method only looks complicated when you treat them as separate tools.
Entering from a zone
The trade is the familiar one. Wait for price to return to a fresh, high-quality zone, enter on the tap, place the stop just beyond the base, and target the next liquidity pool. Combine the zone with premium and discount from the last module, buy demand only in discount, sell supply only in premium, and you have filtered out most of the zones that look fine but sit on the wrong side of the range.
Mark some zones live
Open the live XAUUSD chart and find the last strong move. Walk back to the base it left from and draw the zone, then grade it by how fast price departed. The auto-drawn supply and demand zones on the chart use this same base-and-departure logic, so you can compare your hand-drawn zone with the plotted one and calibrate your eye.
FAQ
What is the difference between supply and demand and order blocks?
They describe the same thing at different resolutions. A demand or supply zone is the small base a move left from; the order block is that zone refined to the single origin candle. Use the zone to find the area and the order block to tighten the entry.
What are the four supply and demand formations?
Drop-base-rally and rally-base-drop are reversal zones where price turns; rally-base-rally and drop-base-drop are continuation zones, pauses inside an existing trend before it resumes.
Why is a fresh zone better than a tested one?
A fresh zone still holds its unfilled orders, so it is more likely to react. Once price has tapped a zone and bounced, those orders are largely filled, making the zone weaker and more likely to break on the next visit.
How do I judge the quality of a zone?
By how price left the base. A fast, imbalanced departure with strong bodies and a fair value gap marks a high-quality zone; a slow, overlapping drift away marks a weak one. The explosion out of the base is the evidence.
Should I buy any demand zone I see?
No. Buy demand only when price is in the discount half of the range, and prefer fresh, high-quality zones that align with the higher-timeframe trend. Combining the zone with premium and discount filters out most low-odds trades.